Morning Report: No, we are not in another housing bubble 6/1/18

Vital Statistics:

Last Change
S&P futures 2716 10
Eurostoxx index 387.8 4.74
Oil (WTI) 66.4 -0.63
10 Year Government Bond Yield 2.92%
30 Year fixed rate mortgage 4.48%

Stocks are higher after a Goldilocks employment report. Bonds and MBS are down.

Jobs report data dump:

  • Payrolls up 223,000 (expectation was 190,000)
  • Unemployment down to 3.8%
  • Labor force participation rate 62.7% (a drop)
  • Average hourly earnings up 0.3% / 2.7%

The Street was looking for wage growth of 0.2% MOM, but the annual number was in line with expectations. The wage growth print shouldn’t move the needle as far as the Fed is concerned. The employment – population ratio increased a tad as the population increased by 183k and the number of employed increased by 293k. We saw another good jump in construction jobs. Bottom line, a good report for equity markets, and a push for the bond market.

In merger news, Citizens Bank is acquiring Franklin American Mortgage. This deal should vault Citizens into a top-15 mortgage lender, bulk up its servicing portfolio and diversify its origination mix.

Italy has found a solution to its political crisis with a new coalition government that will be installed on Friday. Treasury yields should probably be higher, however tough trade talk out of the Trump Administration is keeping them lower. Even the International Steelworkers is against new tariffs, and if you can’t even get the unions on your side it says a lot…

Hard to believe it is here already, but the hurricane season is just beginning. CoreLogic estimates that 7 million homes are at risk in what NOAA expects to be a normal or above normal season. Note the National Flood Insurance program is set to expire right in the middle of the season.

Construction spending increased in April, according to the Census Bureau. Residential construction rose 4.4% MOM and 9.7% YOY.

Manufacturing accelerated in May, according to the ISM report. Employment expanded sharply. New order and production also grew.

As usual, the ISM report showed employers having difficulty finding qualified labor. Labor shortages are a theme these days, but you aren’t seeing the growth in wages you would expect. I wonder if part of the issue is application tracking systems, which seize on keywords and therefore have to be gamed somewhat. How many applicants are unaware of this or are simply bad at it? And if so, how many qualified workers are being screened out and never get presented before a set of eyes? I suspect ATS are good for companies in bad times, when there are a surfeit of applicants, but work against them when the labor pool is tighter.

An interesting editorial in the Wall Street Journal today about the credit box and the possibility of another housing bubble. The authors point to the way home prices have outstripped income growth and posits that a widening credit box (i.e. new 3% down loans from Freddie) are contributing. The authors suggest that underwriters tighten standards, and the government tighten loan parameters to prevent another foreclosure crisis when the market turns.

With regard to home price appreciation, is it due to widening credit standards, or is it due to restricted supply? In other words, is it a housing start problem or a MCAI (mortgage credit availability index) problem? The chart below is of the MBA’s Mortgage Credit Availability Index, which shows a loosening of standards since the bottom, but also demonstrates we are nowhere near the standards that existed during the bubble (and pre-bubble days).

FHA and the GSEs are stepping in on low downpayment loans because there is a complete and utter void in the private market. Prior to the crisis, FHA was a sleepy backwater of the mortgage market, targeted toward low income first time homebuyers. Afterward, its share grew because it was the only game in town. Let’s not conflate FHA mortgages with neg-am pick a pay loans of the bubble years. IMO the issue is a lack of supply (heck the appreciation is the highest in places like San Francisco, where the median price is double the limit on a FHA loan). Housing starts around 2 million for the next several years is what will be needed to cool off home price appreciation (along with the REO-to-rental types ringing the register on their portfolios).

MCAI long term

35 Responses

  1. I say this a lot but this Tweet is just breathtaking in it’s lack of self awareness.


    • Human beings are not good at seeing their own behavior, or their own identity groups behavior, objectively as compared to the behavior of other people/groups they are in opposition to. It’s why both sides constantly complain that “they think it’s Okay When Their Side Does It” and then follow up with why it actually IS okay when their side does it, because they are doing it for the right reasons or there’s an important difference that changes everything, while when the other side does the exact same thing, it’s because they are super awful. And they do not see the irony.


  2. Serious question, does she really believe this?

    How does she reconcile this belief with the actual Presidency’s of Wilson and FDR?


  3. Hey Hey!
    Ho Ho!
    New York State Double Jeopardy Loopholes have got to go!


    • WTF do they think politicians have ALWAYS used the pardon power for? Clinton pardoned frickin’ Marc Rich. At least Trump is pardoning people as a way to appeal to the people who voted for him and who may be coming around, unlike lots of other pardons which are done to cement deep state relationships or pay of political donors, etc.

      These are pardons targeted at the unwashed masses and to appeal to them, which is Trump sticking his finger in the eye of liberal elites. Again.

      Lots of things I don’t like about Trump, and honestly I can’t see pardoning Joe Arpaio based of rule-of-law but I’m okay with it. I thought Scooter Libby was rail-roaded over a complete bullshit story so he should never have even gone to jail, so he frickin’ super-deserves to get pardoned (IMO, I know others disagree).

      Trump seems to me to be making the smartest pardons he could possibly be making, from a re-election and “give the voters what they want” standpoint. The ONLY people who are going to view these as awful and negative are the people who would never, ever, ever vote for Trump.


  4. Clinton pardoning Rich was egregious.

    Arpaio pardon was spiteful, but not as bad as Rich. If he pardons Blago that is spiteful but not as bad as Rich. It is spiteful of the justice system.

    Now, you think he is appealing to his voters. Maybe. But a Blago pardon would likely only be a signal to his indicted buddies and IL’s crooked pols of both parties.

    I honestly cannot think of a pardon in the same bad league as Rich by any POTUS. KW, what did you have in mind?

    I thought GWB commuting Scooter’s sentence was absolutely appropriate. A full pardon would not have been outrageous by any stretch.


  5. This letter to Mueller from Trump’s lawyers is really interesting and revealing.

    The VERY bitchy footnotes by the NYT writers are absolutely hilarious and even more revealing.

    Liked by 1 person

  6. This was pretty good:

    ““I couldn’t shake the feeling that I should have seen it coming,” Rhodes writes about the “darkness” that enveloped him when he saw the electoral map turn red. “Because when you distilled it, stripped out the racism and misogyny, we’d run against Hillary eight years ago with the same message Trump had used: She’s part of a corrupt establishment that can’t be trusted to change.”

    Bad time to figure that out.”


  7. Supremes rule in favor of Masterpiece Cake Shop. I haven’t read the opinion yet, so I have no idea whether the reasoning is legitimate, but at least they got the result right.

    Suprisingly, it was 7-2


    • Here’s the decision:

      Click to access 16-111_j4el.pdf

      Liked by 1 person

      • Ginsburg and the Wise Latina dissented.

        As usual, Kennedy wrote the majority opinion. Thomas wrote his own opinion, joined by Gorsuch.


      • From the very beginning of Kennedy’s opinion:

        The case presents difficult questions as to the proper reconciliation of at least two principles. The first is the authority of a State and its governmental entities to protect the rights and dignity of gay persons who are, or wish to be, married but who face discrimination when they seek goods or services. The second is the right of all persons to exercise fundamental freedoms under the First Amendment, as applied to the States through the Fourteenth Amendment.

        Nonsense. There are no principles in opposition here. Since no one has the “right” to the labor of someone else, the state’s authority to protect the “rights” of gays is not implicated at all in this case. And the notion of protecting someone’s “dignity” is so indefinable it can’t possible rise the the level of a “principle”.


        • Looks like they basically just punted on all of the relevant questions:

          Whatever the confluence of speech and free exercise principles might be in some cases, the Colorado Civil Rights Commission’s consideration of this case was inconsistent with the State’s obligation of religious neutrality. The reason and motive for the baker’s refusal were based on his sincere religious beliefs and convictions. The Court’s precedents make clear that the baker, in his capacity as the owner of a business serving the public, might have his right to the free exercise of religion limited by generally applicable laws. Still, the delicate question of when the free exercise of his religion must yield to an otherwise valid exercise of state power needed to be determined in an adjudication in which religious hostility on the part of the State itself would not be a factor in the balance the State sought to reach. That requirement, however, was not met here. When the Colorado Civil Rights Commission considered this case, it did not do so with the religious neutrality that the Constitution requires.


        • Yeah, apparently it’s all about the commission being to blatant in their motivations for their ruling.

          Kagan and Breyer are letting them know to be more subtle and they’ll get the same result.


      • Not surprisingly, Ginsburg has to basically lie about the facts of the case in order to reach her dissenting opinion:

        The bakeries’ refusal to make Jack cakes of a kind they would not make for any customer scarcely resembles Phillips’ refusal to serve Craig and Mullins: Phillips would not sell to Craig and Mullins, for no reason other than their sexual orientation, a cake of the kind he regularly sold to others.

        Absolutely false. His refusal rested on an objection to same-sex weddings, not to the customers’ sexual orientation. If a heterosexual wanted to buy a cake for a same-sex wedding, he would not have sold to them. If a homosexual wanted to buy a cake for a traditional wedding, he would have sold to them. The sexual orientation of the customer was irrelevant. This deliberate disingenuousness basically gives up the game on Ginsburg and her Wise Latina sister in arms…they are trying to reach a preferred result, not apply the law.


        • “they are trying to reach a preferred result, not apply the law.”

          Aside from Thomas, I’m not sure if the rest are any better in this case.


        • jnc:

          Aside from Thomas, I’m not sure if the rest are any better in this case.

          Kennedy, sure. But I see no reason to think that Gorsuch or Alito is seeking a preferred result rather than applying the law.



          “Justice Ruth Bader Ginsburg dissented from the court’s ruling, in an opinion joined only by Justice Sonia Sotomayor. Ginsburg stressed that there “is much in the Court’s opinion with which I agree,” but she “strongly” disagreed with the idea that the same-sex couple “should lose this case.”



        • nova:

          From your link:

          But at the same time, Kennedy explained, the exception cannot be allowed to swallow the rule, with the result that “a long list” of people would be allowed to refuse to provide services for same-sex marriages.

          Kennedy has it exactly backwards. Anti-discrimination laws are the exception that has swallowed the rule. Under the principle of the right to freedom of association, private discrimination in any context cannot be a legitimate subject of government regulation. The public accommodation laws of the 1964 CRA were an exception to that principle. And with the proliferation of ever more victim classes clamoring for “protection”, inevitably justified simply by saying “But what about black people?”, the principle has effectively been swallowed by the exceptions.


        • Only Thomas would go into the actual history of wedding cakes

          “A tradition from Victorian England that made its way to America after the Civil War, “[w]edding cakes are so packed with symbolism …”


        • More Ginsburg, in a footnote addressing Gorsuch’s opinion:

          Change Craig and Mullins’ sexual orientation (or sex), and Phillips would have provided the cake.

          This, again, is completely false.


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